Covid should have been a boon for Deliveroo – but it still hasn't turned a profit

In a year when entire industries have collapsed, food delivery apps seem to have had an easy ride. The revenues of Uber Eats overtook those of the company’s taxi service; Just Eat merged with the Dutch firm Takeaway.com, and then bought the US app Grubhub; and Deliveroo snagged a $575m Amazon investment, managing to squeeze a sliver of operating profit from the toothpaste tube of its business model. This week Deliveroo went public with its IPO, which the company initially hoped would result in a valuation of somewhere close to £8bn.

But look closer and there is a persistent niggle about the apparent success of food delivery apps. In a year when everyone has been stranded at home and grown tired of their own cooking after a week, delivering food to people should be like playing the pandemic on “easy mode”. But Uber Eats isn’t raking it in – it’s just losing less than it did a year ago, while the pre-tax losses of Just Eat, a business that used to be profitable, jumped 67% in 2020. Meanwhile Deliveroo’s shares crashed by 30% within the first 20 minutes of its listing on the London stock exchange.

Making money is something of an old-fashioned aim for a modern business. The pandemic may not have made food delivery apps profitable, but they have given them something far more important: new customers. Even people who formerly said they hated the apps now have to admit they’re convenient. Every restaurant in your neighbourhood aggregated for ease? Waiting times of just 20 minutes? Delivery for £4? All the theory in the world counts for nothing next to the near-immediate delivery of any burrito in a two-mile radius.

Related: I quit food delivery apps – the absurd convenience was not worth the cost | Josephine Tovey

The writer Barclay Bram calls this type of digital ease a “frictionless reality”. In pursuit of customer convenience, apps such as Deliveroo or Uber Eats make the labour that goes into food preparation invisible. Every aspect of their infrastructure is oriented towards this goal: from the drivers who compete with each other to deliver orders more quickly, to the delivery kitchens which dispense with the inconvenience of actually running a restaurant. Restaurants used to live by the mantra of “the customer is always right”, but the apps say that not only is the customer right, but everyone else is irrelevant.

Delivery apps are not doing anything revolutionary here. In fact, they’re merely the latest form of the modern corporation. Will Shu, the cofounder and CEO of Deliveroo, rightly called Amazon the “most consumer-obsessed company in the world”. Amazon – a company that manufactures next to nothing, owns little real estate, and often doesn’t even employ its own workers as staff – has restructured the entire delivery industry towards added convenience. Even the term “on demand”, the preferred phrase of gig economies, makes the customers’ whims central. The demand is there, these companies say: all they are doing is meeting it.

As Deliveroo is heralded as a “British tech success story” by the chancellor (and make no mistake, it is a British tech success story by every metric except actually making money), it’s vital we interrogate what the cost of this convenience is. Restaurants have long complained about the commissions of up to 35% that food delivery apps levy. But what restaurants are starting to realise is that they have given away control of their customer base. As more customers start to order through the apps, there is an increasing ambiguity over whose customers they actually are. Restaurants have the freedom to leave, but how many of their customers would go with them? Some drivers get an even worse deal. A recent report by the Bureau of Investigative Journalism exposed huge discrepancies in driver pay, with many paid less than the minimum wage.

As we become used to convenience, we’re also becoming inured to its hidden costs. Ten years ago the idea of taxiing a McDonald’s double cheeseburger to your door would have been seen as an act of fin de siècle decadence, now we complain about the artificially low delivery fees. Just Eat Takeaway is already trialling free delivery, which will force Uber Eats and Deliveroo into a mutually assured race to the bottom. That cost will have to come from somewhere. Tech promised us a utopia, but convenience is still built on the inconvenience of those with the least power: restaurant workers and delivery drivers.

Perhaps customers have ventured too far into this frictionless reality to get out of it alone. Unions like the Independent Workers’ Union of Great Britain have done incredible work putting pressure on the apps, winning battles on health and safety protection. But the war will be won on regulation. The news that some asset managers are going to spurn the Deliveroo IPO has little to do with concern for workers and more with the risk of investing in a company that may be one piece of legislation away from disaster. This is why Deliveroo often looks like a political lobbyist as much as a food delivery company – its comms team resembles a fantasy crossbench cabinet of spads (it has employed former special advisers to Priti Patel, David Miliband, Iain Duncan Smith and George Osborne, as well as David Cameron’s speechwriter).

Deliveroo has not announced this IPO in desperation. It could have held out longer on private investment and positive thinking, but the stock flotation will give early investors an out, and new investors a chance to participate in the lottery. The timing is canny. Not only has the company been buoyed by the pandemic, but the IPO has been announced at a time when the City is crying out for a post-Brexit boost. The news that Deliveroo would be listing in London rather than Amsterdam has been greeted by segments of the Treasury with the kind of flag-waving normally reserved for Robert Jenrick’s daytime TV appearances.

But it will come with new problems too. In an infamous New York Times op-ed, the economist Milton Friedman said the role of the corporation was to “engage in activities designed to increase its profits” without additional social responsibility. Its responsibility is to its shareholders, Friedman argued, not society. One wonders what Friedman would make of the delivery apps. So far Deliveroo has delivered on neither responsibility. Soon it will have to do so on at least one. There’s only so long a business can survive on convenience alone.

• Jonathan Nunn is a food writer based in London. He edits the food newsletter Vittles